Faulty Towers: Tenure and the Structure of Higher Education

2/5/2007

By Roger Meiners, Richard Amacher

Independent Institute 2004 Paperback Buy here

Book Review
Reviewed by Richard Vedder

Faulty Towers: Tenure and the Structure of Higher Education is a short and highly readable description of some of the problems confronting American universities. Longtime laborers in the vineyards of academia, Ryan Amacher and Roger Meiners believe the big problem of higher education is not professorial tenure, but the non-profit nature of most universities which lack the incentive to be efficient and innovative.

At least one-third of the book is spent arguing that tenure in not the major culprit for such problems as rising costs. Citing legal evidence, they attempt to show that tenure does not truly confer unconditional lifetime employment on faculty members. While I agree that from a strictly legalistic perspective the authors are right, and even agree that tenure is not one of the two or three leading culprits in explaining the cost explosion and other problems confronting higher education, I think they go a bit too far in making their case. As writers like Thomas Sowell have stated years ago, tenure is not altogether benign in its impact.

"Tenure as it exists is not a barrier to dismissing or disciplining poorly performing or badly behaving faculty members," (p.55). While legally that may be so, it is not true in an economic sense. While employees working on an at-will basis can usually be discharged rather cheaply (although less so in this age of litigation than decades ago), firing tenured faculty is very often expensive, owing to legal expenses and the expenditure of enormous amounts of faculty and administrative time. Moreover, there is great uncertainty a priori as to exactly what those costs will be. Suppose that administrators believe there is a 25 percent probability that detenuring someone will cost over $100,000 in explicit (cash outlays for lawyers) or implicit (enormous amounts of administrative and faculty time) costs. Are they as likely to discharge the tenured person compared to the situation where the expected costs are likely to be $5,000 or less, and the probability that they will exceed, say, $25,000 is less than five percent? Tenure increases what might be termed the transaction costs of discharging human resources. Because of that, tenure enhances the tendency of powerful professors to successfully block needed changes, such as the desired reallocation of university resources in the face of changing student needs, and reduces innovation and change from what otherwise would exist. The empirical question is: How much?

In defense of Amacher and Meiners view, it might be argued that tenure largely pays for itself. The existence of tenure is viewed as a major perk for most faculty members, a benefit with a tangible value. That allows universities to pay less in cash compensation than they might otherwise to attract a professoriate of a given quality. The savings in compensation payments at least partially offset the costs of tenure.

Moreover, the authors are absolutely correct that the non-profit nature of universities causes all sorts of problems. There are virtually no incentives for key-actors - presidents, deans, senior faculty members - to cut costs or even improve the quality of the output, unlike in the private sector, where such moves increase profits and, with that, lead to greater wealth through higher stock prices (which are magnified where stock options exist) bigger profit-sharing bonuses, etc.

Faulty Towers provides marvelous discussions on many fronts including: how the non-profit nature of institutions leads to inefficient committee-based decision-making, how it is not often in the best interest of faculty members to support innovations in other areas of the university, and how administrators were afraid to overly offend their employees, particularly since they often play a major role in the hiring and firing of the administrators (witness recent university president resignations in the wake of no confidence votes by faculty)

The book could have contained more discussion on how the non-profit nature of universities leads to practices that are on balance cost-increasing to the consumer and to society. For example, private businesses engage in vigorous price competition, and often advertise how cheap their products are relative to the competition. Such behavior is virtually non-existent in higher education, with the exception of some for-profit schools.

While the non-profit nature of universities is very important, I think there is a second major culprit in the sharply escalating cost of college that is largely neglected by the authors: third party payments. The two fastest growing components of the Consumer Price Index over the long run (besides tobacco prices, inflated deliberately as a consequence of various public polities including higher taxes) are health care and college tuition. Both are in sectors where third parties largely pay the bills - in the case of health care through Medicare, Medicaid, and private insurance companies, and, in the case of universities, through federal student grants and subsidized loans, privately funded scholarships, state assistance payments directed both towards institutions (state universities), and students, etc. The growth in these payments has been substantial over time, increasing the demand for higher education and thereby raising prices. When someone else is paying the bills, the consumer is less sensitive about the prices than she otherwise would be.

The author's account is marred slightly by a few statements that are of questionable accuracy (the book is lightly footnoted but does have a pretty good list of references).

• In discussing (p. 22) the Supreme Court's decision in Board of Regents of State Colleges v. Roth (1972), the authors refer to Justice "Steward" when they mean Justice Potter Stewart.
  
• The statement that "real wages in most academic disciplines have fallen" (p. 53). seems highly suspect, although there is no explicit time dimension to the statement. Aggregate data on faculty over the period 1980 to 2005 reported in the most recent Digest for Education Statistics show fairly considerable average levels of compensation increase adjusting for inflation, especially at private schools and at the senior ranks, but holding generally across the board.
  
• The authors state that comparisons among the faculty are rarely used in making salary evaluations, which is true in many unionized schools, but is decidedly not true in most private institutions and many state universities as well. While universities have many problems, the use of merit pay is rather widespread, particularly in the more selective admission institutions.

Still, these are relatively minor issues. Amacher and Meiners are on spot when it comes to identifying many of the major problems facing higher education.

They are, however, I think, somewhat tentative in suggesting solutions. Reducing faculty control over curricula may or may not be a good idea, but it is not likely to fundamentally alter things, in my judgment. The notion that faculty are parochial in their concerns, but that administrators have a more balanced university-wide view may be true on average, but turning curricular matters over to them has its problems as well, including the probable subordination of important but non-trendy subject matter to the curricular fad of the moment.

Eliminating state-wide boards overlooking universities is, I would agree, probably on balance a good idea, but it only impacts part of higher education. One-third of four year college students are in private institutions, and some public universities have only weak statewide oversight.

By contrast, the author's call for cracking down on grade inflation, and for moving towards vouchers for students instead of governmental aid to institutions are both useful and rather important reforms.

Yet, I suspect that even more needs to be done. In my opinion, there are five other reforms not cited in Faulty Towers that would improve the operation of market processes (e.g., increase competition) or would directly lower costs.

First, induce colleges receiving federal aid to publish user-friendly data on the "value added" by the college experience - how much learning occurs. Encourage them to provide information on dropout rates, job placement success, etc., to aid student consumers in making better informed college choices.

Second, make transfers between educational institutions more seamless and less costly than at present. This includes the high school/college transition, as well as interuniversity transfers.

Third, lower the rate of increase in per student tuition and fees, and provide greater incentives for a larger portion of students to enter lower cost institutions, or community colleges.

Fourth, be more aggressive in cutting off government subsidies to poorly performing students. Perhaps end all subsidies to students and institutions after four years of study for a bachelor's degree.

Fifth, radically revise certification rules, which often serve as barriers to entry and restrict competition.

Amacher and Meiners seem to implicitly accept the proposition that higher education has positive spillover effects or externalities. I think this is far from clear, and that the case for the partial or complete governmental defunding of higher education is actually pretty good.

Public funding is usually defended on two grounds. First, universities do indeed have positive spillover effects - even non-attendees benefit from the presence of college educated persons. Second, higher education is a path to economic advancement, and in keeping with the American tradition on providing equal opportunity for all to move ahead, we need to support higher education.

On both scores, the evidence seems to be lacking. For example, if positive economic spillover effects existed, we would expect that states that spent relatively high amounts on their universities would grow faster than those who are more parsimonious in their support. However, the evidence suggests the opposite - high spending states have lower economic growth. Similarly, we would expect more state government spending on higher education would translate into more college graduates - yet the data does not support that conclusion.

The ten states spending the lowest proportion of their personal income in 2004 on state university appropriations had more than 20 percent more college graduates per 100 adults than the ten states spending the greatest proportion. As Milton Friedman said to me once, perhaps we should be taxing higher education rather than subsidizing it.

If this more radical interpretation is correct, the author's reforms are tepid and ineffective. Rather than getting rid of state governing boards, we should be getting rid of state universities. Arguably, the intermediate solution is to gradually withdraw institutional government subsidies (e.g., appropriations for state universities), while continuing government financial assistance, but only to the poorest members of society for whom college attendance poses a very significant financial obstacle.

There are, also, other issues, about academic life on which Amacher and Meiners are silent but which are very real. There is growing evidence that today's college students are less literate than previously (the latest Adult Literacy Survey of the U.S. Department of Education has striking data), and are abysmally ignorant of basic facts about our heritage, such as when the Civil War took place. Colleges are the institutions above all others that transmit and expand the verities that are the essence of Western Civilization. They are increasingly ineffective at that task, in part because of inferior training of entering students, but also because of the hodgepodge curriculum of most institutions, combined with perhaps a decline in faculty expectations of students. On that point, I personally disagree with the general view espoused in Faulty Towers that students should not be constrained by many required courses, although I agree that many requirements are imposed to support the self-interest of rent-seeking faculty, rather than achieve legitimate academic purposes such as identifying those things that bind us together as a nation and a civilization. For all the talk about diversity, the most important form of diversity, diversity of ideas, seems to be declining as unpopular views are often not tolerated to the extent that they were a generation ago - the rise of political correctness means a potential loss of academic freedom.

Enough criticism. Amacher and Meiners have written a good book. It has great insights into how many organizations work, and the incentive system, such as it is, that governs the behavior of administrators, trustees, and faculty. Their suggestions for change, while modest, on balance are useful. They have written an account of perhaps 30,000 words - not enough to delve in depth to all the issues that I raised above. Having said this, however, this is an interesting and worthwhile read, certainly a worthy use of a few hours of time.

Richard Vedder is Distinguished Professor of Economics at Ohio University, Visiting Scholar at the American Enterprise Institute, author of Going Broke by Degree: Why College Costs Too Much (Washington, D.C.: AEI Press, 2004), and a member of the Secretary of Education's Commission on the Future of Higher Education. He is the Director of the new Center for College Affordability and Productivity (CCAP) in Washington, D.C.